Best Buy Gets Smacked by Weak Economy, Consumer Spending
Best Buy (NYSE:BBY) has been battling aggressively to fight against the drowning effects of sluggish economic recovery in the U.S. The resultant decrease in the level of consumer spending on electronics has made the situation much more of a struggle for specialty retailer. According to Best Buy CEO Brian Dunn, the TV industry continues to be challenged and its TV comps in Q2 were down low double digits. Best Buy competes with general retailers like Wal-Mart (NYSE:WMT) and Costco (NASDAQ:COST) as well as other specialty retailers like Radio Shack (NYSE:RSH) and GameStop (NYSE:GME).
Our price estimate for Best Buy’s stock stands near $35, implying a 35% premium to the market price.
Best Buy’s Recent Initiatives
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Best Buy has initiated various steps to provide a boost to its sales.
- It launched Best Buy Market Place to allow third party sellers to sell their products through BestBuy.com.
- It is working on creating new innovative digital marketing strategies. It recently launched Deal of the Day program. The program is expected to drive additional traffic and new customers to BestBuy.com.
- It also expanded its Geek Squad Tech Support program which offers customers 1 or 2 years of comprehensive computer service via remote chat session, a store visit, phone call or e-mail.
- Best Buy also initiated Buy Back Program in the beginning of 2011. Customers can return the product within two years of purchase and get a gift card equivalent to product’s present worth.
Despite these initiatives, Best Buy reported dismal Q2 performance numbers.
It reported a 30% fall in operating profit for Q2 2011 with flat revenue growth for the quarter. We believe that it would be difficult for the world’s largest electronics retailer to deliver positive performance unless the economic conditions improve. The recent initiatives could definitely pave the way for an increase in Best Buy’s topline growth. However, presently, much of this seems to boil down to consumer confidence in the U.S. economy.